The SEC has provided new guidance allowing banks to avoid reporting customers’ crypto funds on their balance sheets if they implement measures to mitigate associated risks. This change, first introduced in 2022, eases prior requirements that deterred banks from engaging in crypto custody services.
Previously, banks had to report customers’ crypto holdings, which increased capital requirements and discouraged participation. The shift comes after the House Financial Services Committee’s failed attempt to nullify SEC’s Staff Accounting Bulletin 121. This move follows consultations with large financial lenders and comes in the wake of the FTX crypto exchange bankruptcy.
Now, banks must ensure their customers’ assets are protected in case of bankruptcy or failure. This guidance aims to balance investor risk and promote financial stability. The long-term importance lies in fostering a safer, more inclusive environment for crypto-related financial services.
